Not as bad as expected

9M18 PATMI came up to 92% of our initial full-year forecast due to lower-than-expected revenue declines due to our overly bearish ASP projections.

Kwai Tsing: Throughput -17% y-o-y, affected by typhoon; ASP +7% y-o-y

For 3Q18, HPHT’s throughput was down 7.3% y-o-y.

3Q18 Yantian throughput was up 0.1% y-o-y, with outbound cargoes to the US growing 4% y-o-y, while those to the EU declined 3% y-o-y. On the other hand, 3Q18 Kwai Tsing throughput was down 16.7% y-o-y, mainly due to a reduction in transshipment cargoes. Management noted that Kwai Tsing’s September volumes were particularly bad, possibly due to the Typhoon Mangkhut.

Meanwhile, Kwai Tsing ASP was up 7% y-o-y mainly due to an unusually low tariff base in 3Q17, which in turn was the result of booking nine months of contractual discounts for a large customer during the quarter. We believe without this one-off low-base effect, HPHT’s Kwai Tsing ASPs were generally flat or up slightly on a y-o-y basis due to the decline in transshipment as a proportion of total volume.

Volatile, but continues to look significantly oversold

Management has noted an influx of rush orders in early 4Q18, presumably timed to beat the implementation of the US tariffs in early 2019.

Going forward, we expect more robust throughput figures in 4Q18 for both Yantian and Kwai Tsing, though we note the front-loading of orders may result in weaker volumes for 1H19.

Management has maintained full-year DPU guidance at 17-20 HK cents.

Given that the stock remains a proxy to US-China trade tensions, we continue to expect high volatility heading into the US mid-term elections, and with ongoing news flow on the trade situation. Trump and Xi are due to meet during the G20 meeting, which is to be held on Nov 30 and Dec 1.

After adjustments, our fair value remains at US$0.36. As at 26 Oct’s close, HPHT is trading at a 10.1% FY18F yield and at 0.42x historical P/B which is more than two standard deviations below 0.75x (its average since listing).

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